The Importance Of Data Access For Fintech

Zach Perret is the CEO and co-founder at Plaid, the company building API infrastructure and connecting the fintech ecosystem.

Over the past few years, consumers have gained more control than ever over their financial lives. This is largely thanks to the emergence of a technology ecosystem focused on improving financial services. For example, people today are better equipped to invest with fair fees using Betterment, prepare for retirements with innovations like Guideline, settle debts with friends with Venmo, set savings goals -- and actually meet them -- with Digit and Qapital, and get fair loans with LendUp. These applications represent just a handful of the applications that have emerged in the last few years to help better people's financial lives (note: These companies use my firm's API solutions).

And this is only the beginning of a technologically-reimagined suite of financial services. There’s still much work to be done. For instance, consider the fact that only about 51% of U.S. adults bank online. There is enormous opportunity in this industry for both companies and consumers. In fact, this is what motivated my co-founder and me to build a financial technology firm — to try to modernize banking infrastructure and lower that barrier to entry.

Yet behind the scenes, critical conversations are underway that could ground this burgeoning financial technology industry just as it begins to take off.

Financial Services Is Powered By Data

The financial technology industry is, fundamentally, powered by data: data about available funds in an account, or data that validates someone’s identity. Money, at some basic level, is also just data. However, recent reports have indicated that some financial institutions “are looking for ways to limit, or even shut off, access to financial data” for consumers using third-party applications, says Richard Cordray, the director of the Consumer Financial Protection Bureau (CFPB). The Center for Financial Services Innovation, a bipartisan group dedicated to financial health, also underscored this in a whitepaper, noting that the motivations here are nuanced, ranging from a need for more control, questions about security, and even concerns about competition.

Regardless of motivation, this is a concern because limiting financial data access would stall the technological advances consumers have seen and benefited from. One of the recent advancements has been improvement at the data layer. For instance, we've seen benefits from enabling disparate parties -- like banks and the developers of applications like those I mentioned earlier -- to connect with one another more easily.

In an industry where little has changed over the past several decades, especially at the infrastructure level, I believe these connections provide better services. They allow payments to move more quickly so people can see their available balances. They can also make it possible for businesses to check balances and time transactions so customers aren’t penalized with non-sufficient funds fees. These connections can even let lenders approve more people for loans who would otherwise be ignored or penalized by the traditional credit file system.